Bob Aldrich wrote:
- quote -

As far as I can tell, CA does not have the credit available
for a repayment. However, CA does conform to federal law
relating to Misc. itemized deductions. There is one overall
caveat relating to this deduction. You can't take the
deduction unless the payment was taxed by CA. CA does not
tax social security.

--
Alan
http://taxtopics.net

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Bob Aldrich wrote:

- quote -

Too quick on the send key, sorry.

Here are some missing details: Repayments and I.R.C 1341
are described on page 30 of IRS Pub 525 "Taxable and
Nontaxable Income".

That description states "generally ... business". Not
"always", you'll have to find out when it applies to
individuals; I was told by the IRS (phone, and as I recall,
after moving thru multiple levels of IRS service people, and
possibly after transfers to more specialized individuals) to
use I.R.C. 1341 in exactly the same case as your client:
repaying insurance money after SS payments.

btw, you also might check on processing the lump sum SS
payment: the sum can be distributed to the individual years
or left in the year received - the taxpayer chooses.
Suprise to me that, in my case, the lump sum in the year
received resulted in the lower tax bill total for all the
year involved.

dick w

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Bob Aldrich wrote:

- quote -

I went through a similar process; you'll have to see if my
experience applies to your case. The magic words are
"I.R.C. 1341".

I recalculated multiple years (94,95,..) without the
insurance payments, the reduced tax liability for those
years went on line 63 of my 1998 return (that year the
payment/refund lines were 65/66 - these line number are from
descriptions on my excel spreadsheet for tax filings, I've
not pulled up those old returns for writing this response).

That is, the amount went on line 63 with handwritten (per
IRS verbal instructions) note "I.R.C. 1341".

1998 line 63 must be in the tax payment/credit section of
the form, so if my experience applies, your client will get
a check from the IRS - the clients lack of any tax liability
would not be a problem.

The state, California, had no such (IRC 1341) provision, but
California does have a Taxpayer's Advocate office that did a
good job for me (I recovered all but a few hundred dollars)
of related state taxes.

dick w

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"Bob Aldrich" <nospam[at]msn.com> wrote:

- quote -

I found the solution in Sec 1341. I was unaware of the
refundable credit alternative. Solves the problem for
Federal purposes, but not sure about California.

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I have a very unusual situation with a client, one where he
will not, according to the rules, be able to recover a big
chunk of 2002 income tax for money he repaid to an insurance
company. Here is the short version:

He became disabled at the end of 2000. He received taxable
third-party sick pay from the insurance company of $50,000
in 2002 which covered 2001 and 2002, and $25,000 in 2003
which covered 2003.

In 2003 he received a SSA-1099 for $60,000 which included
$20,000 paid for 2001 and $20,000 paid for 2002. When that
came through, he was required to repay the insurance
company, in 2003, $27,000 for 2002 and $13,000 for 2003.

The insurance company sent him a 2003 W-2 for $12,000
($25,000 less $13,000 repaid). They also told him the
balance of the repayment, $27,000, could be taken as a misc.
itemized deduction on his 2003 tax return. The problem is,
he will have no 2003 tax liability, so the $27,000 would
just be wasted.

My question..Is there any basis by which he can amend his
2002 tax return to reduce the reported $50,000 by the
$27,000 he had to repay in 2003? If SSA had reached its
decision in 2002, it would be a non-issue since he would
have repaid the insurance company in 2002, and he would have
received a 2002 W-2 for $23,000.

Any suggestions are sincerely appreciated.

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